Collapse of local cement industry seen to pull down banking sector

The collapse of the local cement industry could have a devastating effect on the banking industry.

This was the warning yesterday of lawyer Susan Villanueva, counsel of the Philippine Cement Corp. (Philcemcor).

According to Villanueva, local banks have a $500 million or P27 billion (at P53 to $1) exposure to the local cement industry resulting from the refinancing of the dollar-denominated loans of several cement manufacturers.

She pointed out that if the cement industry is allowed to collapse in the same way that the steel and tire industry did, it would also affect the banking system.

The predicament of the cement industry is similar to that of the National Steel Corp. (NSC) which now has a P17 billion loans from the banks.

Industry sources said the local cement industry is facing unfair competition from imported cement.

Villanueva said that while imported cement come in at an average landed cost of P86/bag (with value-added tax), as opposed to average local ex-plant price of P134/bag, its retail price still ranges from P135 to P150 per bag.

This compares to the price of local cement which retails from P137 to P147 per bag.

Villanueva said, traders and middlemen are able to earn a profit of as much as P58 per bag for imported cement based on an average landed cost of P86/bag and a retail price of P144/bag.

On the other hand, the profit margin on local cement is a mere P10.67 per bag based on an ex-plant price of P134/bag and a retail price of P144.67/bag.

Villanueva explained that local cement prices have actually not kept pace with those of other construction materials or with inflation.

In fact, Villanueva said, cement prices are still significantly below pre-crisis levels.

However, she clarified that in absolute terms, local cement prices have increased due to the depreciation of the peso against the dollar.

Villanueva cited the fact that most of the production cost of cement is affected by the dollar cost of fuel.

Philcemcor, Villanueva said, is not against imported cement. The cement industry, she assured, has been able to modernize and become competitive.

However, she said, it currently needs a break to recover from the Asian crisis which adversely affected its dollar-denominated debts.

Those debts, Villanueva reiterated, were used to upgrade and modernize the existing cement plants.

Local cement manufacturers have asked the Department of Trade and Industry to impose a provisional 200-day tariff rate hike to give them time to argue their case for protection under the Safeguard Measures Act.